Shares of Keurig Dr Pepper (KDP, Financial) dropped by 4.85% after the company released its third-quarter earnings report, which fell short of expectations, and announced an acquisition.
Keurig Dr Pepper's (KDP, Financial) revenue increased by 2.3% to $3.89 billion, falling short of the projected $3.93 billion. Despite a 0.4% decrease in prices, sales rose 3.1% on a constant-currency basis, attributed to a 3.5% increase in volume and sales mix. U.S. soft drink sales grew 5.3% to $2.4 billion, whereas U.S. coffee sales declined 3.6% to $1 billion. The adjusted operating income saw a 7.5% increase to $1.05 billion, with adjusted earnings per share rising to $0.51, aligning with expectations.
In a strategic move, the company announced its plans to acquire Ghost, an energy drink maker, for $990 million. Keurig will initially purchase a 60% stake, with the remaining 40% to be acquired in 2028, contingent upon Ghost's 2027 financial performance. Management anticipates that the acquisition will be neutral to modestly accretive to EPS starting in 2025.
Keurig Dr Pepper (KDP, Financial) reaffirmed its full-year outlook, projecting mid-single-digit growth in constant-currency sales and high-single-digit growth in adjusted EPS. However, the acquisition of Ghost has raised concerns among investors, given the slowdown in the energy drink market. Keurig values Ghost at a price-to-sales multiple of 3, akin to its own valuation. Analysts will be keenly observing the integration process to ensure no complications arise, especially in light of precedents set by PepsiCo and Celsius Holdings.
From a valuation perspective, Keurig Dr Pepper (KDP, Financial) currently holds a P/E ratio of 22.24 and a Price-to-Book ratio of 1.92. The company's GF Value places it in the 'Modestly Undervalued' category with a value of 40.43. Investors can view the GF Value for a more detailed analysis. Despite some financial warning signs, including an Altman Z-Score of 1.64, the company maintains a strong Piotroski F-Score of 7, indicating a healthy financial position.
In terms of growth, Keurig Dr Pepper (KDP, Financial) has experienced a revenue growth of 5.7% over the past year. The company's dividend yield stands at 2.49%, with a promising dividend growth rate of 7.5% over the last year. With a market capitalization of $47.35 billion, Keurig Dr Pepper is positioned as a medium-sized player in the consumer defensive sector, specifically within non-alcoholic beverages.
Investors will continue to monitor how Keurig Dr Pepper (KDP, Financial) navigates the challenges associated with its latest acquisition and market conditions to determine if it can achieve its projected growth targets.
